Everything you need to know
How do we evaluate?
We have been funding companies that not too many people seem to like initially. These companies solve rather unsexy problems of rather common people across the world. We don't care if it looks ugly, as long as it promises to grow like weed.
However, the process is rather subjective. Sometimes we feel network effect is more important than the tech, or that tech is more important than design. At other times, we feel distribution is more important than engagement. These discussions help us judge how strongly you feel about the market and your approach to it.
After you respond to my pitch, what is the process?
It starts with an initial call - usually on one Zoom with a partner or an associate. There may be a follow-up action or call after that. The next step? Pitch to a larger group - two or more partners after which its either a pass or a final pitch to the whole IndiaQuotient team. There will be intermediate coffees that will be more about knowing you. After our IC, we will get a termsheet out in 24 hours. The whole process can take as little as one week, but we prefer a bit of “slow dating” to give founders a chance to know us better.
What sectors do we like?
The intersection of smartphone, big data, and design is changing our lives. We see people around us doing almost everything on the smartphone. Buying, talking, learning, playing, getting entertained, paying bills, and more. We think that a country of our size has big markets and bigger markets. Choosing a market is about relative size, be it food, water, housing, healthcare, education, finance, SaaS, or discretionary spends.
How do you reach out to us?
Find us on LinkedIn and Twitter, at events and conferences, or via common friends. Become friends with our existing founders. As a last resort, you could even write us an email or fill this form
When is the best time to reach out to us?
Sunday evening, because we just can’t wait for the week to start!
It is never too early to reach out to us. The best time to pitch is when you haven’t got a single customer, and the best form of pitching is a link to your product.
What do we look for in entrepreneurs?
It will help if you describe yourself in a word or two: hacker and blogger, designer mom of two, consultant turned cook, musician turned data analyst, doctor turned banker, etc. We ideally want you to be all of these.
Thorough research on Google has shown that the following criteria define a good entrepreneur. We want all of these, or just the last one!
- Hunger - underdogs, like struggle
- Hustle – take very quick decisions using the subconscious
- Have only one focus in life
- Very frugal; lifestyle already sacrificed
- Love breaking the norms/your surname is Bansal
What do we think of copycat models?
We think it’s about the execution, not the idea. In India, some business models are just dead on arrival. And yet there are many ideas that will work very well here. We don’t mind if you are inspired by somebody, but we prefer that you write your own script. Thanks, Firstround!
What kind of companies do we back?
We have sleepless nights after we say ‘sorry’ to an entrepreneur. So, please make sure your company is disrupting something, shaking things up, offending a lot of people. Take a cue or two from this list:
- You think current social networks will fade away, like their predecessors, and you want to build the next one. From India.
- You were denied a loan by a bank and want to raze down all those big buildings and shrink them to an app.
- You want to eliminate exams entirely, and do assessments by monitoring the pulse rate of students during classes.
- You don't like current music apps, and think your taste of music should play on its own for you.
- You want to make consumer hardware in India, even though your batchmates think you are nuts to stay back here.
- You want to create a brand that leverages the internet for marketing, sales, and distribution.
Where is the catch?
Here is what our term sheet looks like. It’s rather similar to the ones other funds have, but we sincerely hope you will want to work with us despite it. Please think of us as cool people because we have put it out in the open.
- Type of Security - convertible preferred stock, standard conversion terms
- Vesting Clause - Equally vested over 4 years, 1 year cliff
- Liquidation Preference - non-participatory and no double dip
- Anti-dilution - Broad-based weighted average
- Other commercial rights of investors - convertible preferred stock, standard conversion terms
- Right of first refusal on promoter or angel stock sale
- Tag along right ahead of any promoters
- Drag rights on all promoter stock after IV years from investment
- Pre-emptive rights to maintain current level of shareholding
- Limited rights to angels if there is an angel investor, s/he will only have liquidation preference and anti-dilution rights
- Board of Directors - IndiaQuotient – right to appoint 1 director
- Veto Rights
- New share issues, dividends, buyback
- Related party transactions
- Borrowing or early repayment
- Dissolution or liquidation
- Merger, consolidation, or sale of business
- Sell transfer or grant any IP rights
- Effect any change in management control
- Change in size of the board of directors
- Sizeable capital expenditures
- Amending of MoA of the company
- IPO plans
- Approval of annual accounts, operating budgets
- Removal or appointment of any key employee
- Change in scope of the business
- Lock in Period - 100% of founder stocks will be locked in till exit of the investors.
- ESOP Pool - to be created pre-investment
- Representations and Warranties - standard
- Use of Proceeds - To be agreed upon by investors and founders
- Financial Statements & Reporting - Monthly operating MIS before 8th of next month, bank statements, quarterly financial statements, including detailed cash flows, annual audited statements. Format to be agreed upon.
- Inspection Rights - standard
- Sunset Clause - when investors go below 5% shareholding
- Exclusivity - for 30 days
- Diligence and legal Expenses - Up to 1% of the transaction, on actuals, to be borne by the company
- Governing Law - as per laws of India
- Validity - offer valid till 30 days from signing of the term sheet.
Should I not raise an angel round before going to VCs?
It’s an extra round of dilution. Period. Most of our founders raise their first cheque from us, and many of them add angels of their choice to our round.
What about signalling risk with VCs? Do you follow on in the next round?
We have the highest graduation rate from our round to follow-on rounds, at over 75%. And we have given bridge rounds to each and every portfolio company when they asked for it.
Will I get enough freedom to do my own thing?
We promise no ‘board meetings’ till we are the only investors in the company. You will find us available any time of the day, but won’t hear from us chasing you for ‘data’ and reports. You don’t treat us as your ‘directors’ in the real sense, but as a resource that you can leverage when you need.
I don’t need a lot of money. Will it still be meaningful to you?
You will always get a partner on your board, along with another supporting partner. And each partner does not more than 3 deals a year, staking their personal credibility behind the company, regardless of the deal size. So whether its 150K or 2M, you will be equally important to us.